Our recent article (MAS Has Another Go at Property Cooling Measures) has garnered a few comments online that we would like to address. Many of the comments have focused on how these measures will impact the poorer and more marginalised folks, who are barely scraping by with their daily needs and debt repayments. Not a few blame the government and banks for manipulating the rules for their own benefit.

The common sentiment is that these measures target the common folk, while leaving the rich and powerful unscathed.

They are not wrong. We believe these measures are precisely meant to target borderline loan cases, in which the borrowers would have just managed to scrape by getting approval, thanks to the unusually low interest rate. In addition, they are pulling out all the stops, using every trick in the book and exploiting all the loopholes in order to buy their property.

Yes, these measures hit this group hard, and we do not think it is necessarily a bad thing. This group would be the most vulnerable when economic factors start rocking the boat; they would be the first to tumble overboard. As one commentor rightly pointed out, national household debt has grown from 38% in 2000 to 75% currently. This amount of leverage could very possibly see banks succumbing as well, should a majority of their loans default.

In and of itself, this round of measures enforces prudence, and safeguards the public, as well as banks, against:

Over-leveraging

Lack of foresight

Future market downturn

Toxic debt situations

In other words, we think these recent measures by Monetary Authority of Singapore (MAS) are appropriate, albeit a little late for some, given the situation that is looming on the horizon. While owning a home may seem like a very essential and unequivocal right, it should not come at the risk of bankruptcy and the total loss of life savings. There are other options.

But, we do have a caveat. We also agree with many commentors’ point that housing, especially public housing, in Singapore has reached ridiculous price levels. That is why people are signing their lives away. Something must be done to change the rent-seeking, profit-at-all-cost-driven behaviour of the current property boom cycle.

The government cannot just rely on cooling measures in isolation. Further action, such as sweeping policy changes to public housing, must be taken.

At the moment, there is no capital gains tax in Singapore. Profit from sale of property is not taxed, unless an individual has been deemed to be trading in properties. At the very least, some sort of gains tax on the massive profits made on the skyrocketing prices of property would discourage churning and profiteering.

But in addition to taxing the rich profits made by such property wheelers and dealers, we believe taxation should also be levied on holdings. Having an upfront tax in the form of ABSD doesn’t seem to be enough. There are many who hold on to multiple property titles, either waiting for prices to climb further, or for rental purposes. Such people do contribute to the increase in prices by throttling supply. A holding tax that increases with number of properties owned, or even tiered by the value of total holding value, might be a way to encourage better distribution of wealth and property.

Another approach could be to reducing the cost of the subsistence level of housing, in order to deflate the market. A comprehensive rental scheme is one way to do that, and another way would be to simply increase the supply of public housing.

Let us know your thoughts in the comment section below, or keep in touch by liking or following us on our Facebook, Twitter, and Google+ pages.

No Tag
5,825 views

One Response to “MAS Instills Discipline with New Housing Loan Measures”

This is a weblog maintained by BLUTA Singapore Pte Ltd and is subject to our standard Terms of Use. The opinions expressed here represent those of ours at the time when each article is posted. It is possible that our thoughts and opinions change from time to time, and as such any thoughts and opinions expressed within out-of-date posts may not be the same, nor even similar, to those we may hold today.